Powering up: Modi may soon control two-thirds of the states

I was among those warning that a Modi government could not transform the economy quickly. It faced deep structural constraints, both economic and political. However, both are lifting faster than seemed possible till now. Last week I wrote about how economic constraints were easing, thanks to soaring animal spirits. Foreign investors have brought in $11 billion since January. After being net sellers for years, an additional 3.8 lakh Indian investors entered the market through mutual funds in April.

Earlier, liquid cash of any sort -foreign exchange, equity, debt -was scarce. But the investment rush means that dollars, debt and equity are suddenly available aplenty. Last Friday, foreign investors pumped Rs 5,000 crore of equity into Yes Bank and Kotak Mahindra Bank. DLF, a tarnished real estate firm considered untouchable till recently, was able to raise Rs 512 crore of debt on good terms.

Huge bad debts of infrastructure companies earlier threatened to pull down banks too. They were twins in deep distress. Suddenly their stock price have soared 50-100% in the last month, in expectation of better days. Liquid cash has ceased to be a constraint, even in the most constrained sectors.

That applies to political constraints too. For over two decades, the ruling coalition in the Lok Sabha has lacked a majority in the Rajya Sabha, crippling its legislative capacity. The NDA has won 336 of 543 seats in the Lok Sabha, and can nominate another two Anglo Indian members, making 338 out of 545. But it controls just 63 of the 250 seats in the Rajya Sabha. The UPA controls 71. Regional parties control most of the rest, and have minds of their own.

The Constitution provides for a joint session of both Houses if they cannot agree on a Bill. In the coalition era starting in 1989, the alliance controlling the Lok Sabha never had a large enough majority to offset its deficit in the Rajya Sabha. So, joint sessions of Parliament could not be used to push through Bills.

But today, the NDA’s majority in the Lok Sabha is big enough to offset its deficit in the Rajya Sabha. It will control 401 votes out of 795 in a Joint Session. This is a slim majority, but decisive. Once it becomes clear that Modi can win in a joint session, resistance even in the Rajya Sabha may melt away: regional parties will avoid battles with New Delhi save on issues they view as truly critical. So the NDA should have a smooth ride in both Houses, for the first time in 30 years.

Until the general election, the NDA ruled in only six of India’s 21 major states, and one more (Goa) of its eight statelets. But it has just triumphed in the Seemandhra election, held simultaneously with the general election. Moreover, fragile coalitions are tottering and likely to fall in Jharkhand, Delhi and Uttarakhand. The BJP might come to power there with the help of defectors, or after fresh elections in these states. Besides, state elections are due by the end of 2015 in four more states -Maharashtra, Haryana, Bihar and Kashmir. Going by trends in the general election, the NDA should win the first three, and may win in Kashmir too in alliance with the PDP.

If so, Modi and his allies will soon control 14 of India’s 21 major states. Six of the seven Northeastern statelets (the exception being Tripura) back whichever party rules in New Delhi, which today means the BJP.

This has major implications. The ideas Modi innovated as chief minister of Gujarat cannot be imposed on other states if he becomes Prime Minister. State governments cannot be dictated to on a vast range of issues in which they have jurisdiction -social services, infrastructure, land, labour, justice, police and much else. In the last 25 years, state governments have often resisted prodding from New Delhi. However, if Modi controls two-thirds of the states, he will be well placed to get them to fall in line. He has often spoken of decentralising power from New Delhi to the states. Sceptics have wondered if he will really give up federal powers to entities ruled mainly ruled by the Opposition. But once he controls two-thirds of the states, decentralisation looks altogether more politically plausible.

In sum, many structural constraints on both on the political and economic side have lifted. Many other constraints remain -chronic food inflation, a new licence-permit raj based on environmental and land acquisition laws, and a fearful bureaucracy that doesn’t move files. But Modi is off to a good start, and his power seems destined to spread rapidly from the Lok Sabha to the Rajya Sabha, and the states too.